Service and hardware costs snag Wimax rollouts

Helen Nierinck/Analysis
10 Apr 2008

The Wimax Forum and equipment vendors are promoting the application of Wimax for a variety of fixed and mobile applications in developed and developing countries. They suggest that recent announcements of intended Wimax deployments are early signs of the technology's mainstream global deployment. In reality, Wimax will face intense competition in developed markets from rapidly evolving fixed and cellular services, while growth of Wimax services in developing markets will be slowed by limited disposable income and the popularity of cellular services. There may be very few cases in which Wimax has a secure long-term business case.

The outlook for Wimax looked brighter at the beginning of 2007 after major US carrier Sprint Nextel had selected Wimax as its 4G platform in August 2006. The carrier subsequently announced a major partnership with Clearwire in July 2007, which would provide coverage to more than 100 million customers in the US by the end of 2008.

Unfortunately, Sprint Nextel started to have problems with its investors and its CEO stepped down in October 2007 and, by November 2007, the partnership with Clearwire had fallen apart. Sprint Nextel continues to insist that it is committed to Wimax, but there is speculation that it will sell its Wimax division.

Despite this setback, operators continue to embark upon new Wimax trials in the US and elsewhere in the world and have launched deployments and commercial services in several continents.

Some mobile operators may consider early deployment of Wimax to avert the risk of network congestion because of fears that Long Term Evolution (LTE) will take too long to arrive. Wimax also retains the support of several major vendors including Intel, Motorola and Samsung. Other vendors have yet to commit to a single technology and continue to develop and supply several including high-speed packet access, Wimax and LTE.

The willingness of regulators to make spectrum available for Wimax continues to be paramount to its success. The spectrum licensing process varies between countries as do the terms and conditions of concessions awarded to operators. Wimax has failed to gain a significant foothold in some countries because of the lack of available spectrum, but several auctions are scheduled for 2008.

Early business cases from the Wimax community show attractive potential returns from a variety of business environments including urban, suburban and rural areas in developed and developing markets. However, these optimistic estimates ignore the major problem of competition from DSL services. Operators will find it difficult to achieve a significant share of a market that is served by a host of DSL service providers - many of which will have established businesses and major brands.

In addition, fierce price competition will make it difficult to achieve adequate ARPU and could undermine the business case. Therefore, the most obvious opportunities for Wimax may be in areas that have neither an established DSL service nor copper networks that DSL could exploit. But even in these circumstances, other factors such as limited disposable income, competition from cellular services and the relatively high cost of Wimax customer-provided equipment could be barriers to the success of Wimax.

Developing countries are often cited as the prime opportunity for Wimax networks because they lack a viable fixed network alternative. Wimax operators might be able to seize control of these countries' broadband markets, but the low level of disposable income and demand for voice services will limit their growth rate and revenue potential.

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